The Federal Aviation Administration has issued sweeping changes concerning the re-registration and renewal of all aircraft. Beginning October 1, 2010, the FAA will terminate over a three-year period the registration of all aircraft registered on or prior to that date. Going forward, the FAA will require the re-registration of aircraft and a renewal of such registration every three years.
This change in the registration system is made to increase the accuracy of the FAA’s database which is used by financial institutions, among others, in conjunction with financing transactions. This change in the law will require lenders and leasing companies to more closely track the registration status of aircraft. At a minimum, it would be advisable for financing documents to add a covenant requiring borrowers to show proof of compliance with these registration requirements. In addition, lenders will need to make sure that they have tracking mechanisms in place in order to confirm compliance. According to the FAA, this rule will not affect security interests that lenders register with the FAA. Those registrations of security interests will continue in perpetuity regardless of the status of the aircraft’s own registration. However, as with any new rule, its ultimate effects remain to be seen.
Since the effect of failure to comply with these re-registration or renewal requirements will result in an aircraft being grounded, lenders will want to make sure that these new rules are complied with since non-compliance may have a detrimental effect on collateral values. If you would like more information, or if you have questions regarding the new rules, please contact Laura Scott.
Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com
Tags: aircraft registration renewals, Federal Aviation Administration, financing transactions, Laura A. Scott